Chapter 1

Question 1

Which areas involved International financial reporting?

Answer 1

• First comparative accounting systems, institutions, and practices.
• Second the accounting for international transactions and multinational enterprises.

Question 2

What happened in 1973?

Answer 2

There were no international accounting standards until 1973 when the International Accounting Standards Committee started to develop its International Accounting Standards. Multinational corporations had to follow the accounting standards in the countries of the stock exchange where they were listed.

Question 3

Which 5 things do companies to raise capital from international investors in response to the problem of different accounting standards across different countries?

Answer 3

1. Do nothing.
2. Provide translation in another language.
3. Providing translations in the languages as well as the currency of the country from investment was sought.
4. Provide partial restatements.
5. Prepare secondary financial statements.

Question 4

What happend in 2001?

Answer 4

international financial reporting has increasingly come to mean financial reporting based on the board’s IFRS standards.

Question 5

What lead to the change in 2001?

Answer 5

It was an inefficient and costly way of doing things, and it also caused much confusion for users of those financial statements.

Question 6

What effect had the change in 2001?

Answer 6

The board cornered the market for international financial reporting standards towards the extent that there is no competition for IFRS standards as the accepted set of international accounting standards.

Question 7

What is Accounting?

Answer 7

Is the process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information. Or simply, the use of accounting information as a basis for decision-making. One can think of the purpose of accounting as providing accountability for the way an accounting entity has achieved or failed to achieve its objectives in the past.

Question 8

What is Financial Accounting?

Answer 8

Serves the purpose of determining the financial position and the financial performance of the business entity.

Question 9

What is Financial Reporting?

Answer 9

Is the periodic reporting of an entity’s financial position, financial performance, and other financial information. In short, corporate governance is the system by which companies are directed and controlled. Within the corporate governance system, financial reporting is by means by which the directors of a company provide accountability to its shareholders for the financial performance and financial position of the company.

Question 10

What are Unlimited Companies?

Answer 10

These companies do not offer shareholders the protection of limited liability, which makes the shareholders of unlimited companies like the owners of partnerships

Question 11

What are Limited Companies?

Answer 11

This means that the liability of the shareholders for the business entity liabilities is limited to the amount that they have invested.

Question 12

What is a Stock Exchange?

Answer 12

Is a market for trading in the issued shares of public limited companies and other types of debt and equity securities. To qualify to have its securities listed and traded, the company must fulfil strict financial reporting and other requirements issued by the stock exchange.

Question 13

What is Public Limited Companies?

Answer 13

Companies issue their shares to the public

Question 14

How came the main functions of financial accounting and reporting standards and financial regulation to be?

Answer 14

1. To establish a minimum standard for the quality, quantity, and presentation of useful financial information to reduce the information asymmetry between managers and investors in equity and debt securities and other users of financial statement information, to improve their resource-allocation decisions.
2. To improve transparency and access to information to create a more level playing field for investors. Otherwise, those investors may withdraw from the capital market all together because they tend to lose out to those investors with better access to information and the ability to buy investment advice from analysts with better information-processing capabilities.

Question 15

What is the idea behind the main functions of financial accounting and reporting?

Answer 15

To prevent capital markets from breaking down due to a lack of public confidence.

Question 16

What is the objective of general-purpose financial reporting ?

Answer 16

Is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.

Question 17

What is the Accountability objective?

Answer 17

Refers to the action of providing information to account for one’s actions and decisions to those to whom one is accountable.

Question 18

What is the decision-usefulness function objective?

Answer 18

Is to provide information to help prospective shareholders and other investors, lenders and creditors in a market setting to make decisions about providing resources to the reporting entity. Ultimately the goal is for general purpose financial reporting to contribute to an efficient allocation of financial capital and other resources and stable economic growth.

Question 19

What is the efficient contracting objective?

Answer 19

Regards the main function as providing information to enable contracting between entities and lenders or between reporting entities and senior managers.

Question 20

What is the social function objective?

Answer 20

Is the reconciliation or at least the balancing of conflicting interests of all parties external to the reporting entity, including but not limited to its shareholders.